Question

What will be the journal entry for bank paid 300 rs directly for insurance premium of basu

Answer 1

In the books of Basu

JOURNAL ENTRY:

1) Insurance premium a/c------------------Dr.                 300

      To Bank A/c--------------------------------Cr.                                  300

(being insurance premium paid by bank)

   

Answer 2

Journal Entry :

Drawings A/C. Dr. Rs.300

To Bank A/C. Rs.300

(Being insurance premium of the proprietor paid)

Explanation :

According to the business entity concept, personal transactions should not be clubbed with the business transactions.

So, insurance premium paid for the proprietor Basu is a personal transaction, and therefore it is treated as drawings and needs to be debited.

Payment is being made . According ,to the Real account principle, when payment is made through bank,it needs to be credited.